Alan Woods

Bret Kugelmass
Alan Woods, welcome to Titans of Nuclear.

Alan Woods
Thank you, Bret. Nice to see you again in this virtual world.

Bret Kugelmass
Well, yes, of course. So you're the Director of Strategy and Business Development at Rolls Royce. And I know you've spent a long time there as well. But before that, I'd like to know how you even got involved and interested in nuclear to begin with.

Alan Woods
Well I actually came into nuclear through the defense side. I'm an engineer by background. So while I'm the Director of Strategy and Business Development for our SMR business now, originally, I was an engineer, and I was actually an electrical engineer. And I ended up in nuclear through working in the defense side within submarines. And my original engineering activity was focused around control systems for nuclear submarine plants. And within that part of my career, I had responsibility for what they call the maneuvering room, the control room for the reactor, and also all of the critical, safety, critical, control and instrumentation system. So it was quite a far ranging scope. And it was great, I really enjoyed it, the fact that you're controlling the power on a nuclear submarine is quite something else. And that's what really captivated my interest. And of course, as a control systems engineer, in nuclear, you can't help but get deeply embedded in understanding the rest of the nuclear plant. And that's really where, where my interest started from.

Bret Kugelmass
Amazing. Now, the controls for submarines have different requirements than the nuclear controls for power plants, right? Because, as far as I understand, and correct me if I'm wrong, one of the things that's important for a nuclear submarine is to be able to change power levels very quickly, like the actual reactor core power levels, not just your electric output levels.

Alan Woods
Yeah, I'm not really gonna comment on the submarine side of stuff, but you know, quite clearly they have different sets of operational requirements that move the status along base reactors about grid power. So, our focus in SMR is all around the requirements of grid power. And they are somewhat different to if your operating system is a bit of a moving nature.

Bret Kugelmass
So I'm just to make sure we follow the progression of your career. How long were you in the Navy for?

Alan Woods
Sorry, I wasn't in the Navy that was within Rolls Royce. Rolls Royces has two parts to its nuclear business one is defense work. Suppose that the UK's Royal Navy, in designing and operating those plants and it also has a civil nuclear business of which SMRs is a part.

Bret Kugelmass
And was this your first job though?

Alan Woods
Yeah, I joined Rolls Royce as a graduate actually, a graduate engineer. And within that, Rolls Royce, a great company, you have many opportunities to move around. So you have a base business, and I moved around different parts of the company. So I went to marine, worked in aerospace. And now I work in civil nuclear, and then more, more specifically SMRs. So throughout my career, I've always had the opportunity to move around not just different roles, from engineering, to program management to strategy, but also in different parts of the business, including quite a long stint I did in corporate strategy, which is a fantastic place to work. And in a company like Rolls Royce, we do lots of very different things from technology markets. And that, that gets so much interest from a career perspective.

Bret Kugelmass
And what is corporate strategy for those who aren't in the business world? Is that like mergers and acquisitions and that kind of stuff.

Alan Woods
Yeah, cool. So corporate strategy in our world in Rolls Royce, it covers everything that is what we call organic activity, not inorganic activity. So inorganic, would be your mergers, acquisitions. Organic activity includes things like what's our market strategy? What's our product strategy? What's our future product portfolio? So we work closely with the technical folks who look at new technologies within the company. So it covers a very broad range of aspects, but it does focus across all those products, markets, new and old. And then inorganic and organic. It's, it's quite far, far reaching. It's extremely interesting. You never do you never do the same thing twice in the corporate strategy.

Bret Kugelmass
Paint the picture of Rolls Royce more generally for us, what's its history? And how much of it is nuclear? How much is the Navy? How much of it is airplane engines? Break down for us? Yeah.

Alan Woods
Well, so Rolls Royce this year, you're probably well aware it is most famous for its cars, but we don't actually do cars anymore. The car part of Rolls Royce was sold. And the more recent history of the business, which I say recently, it's probably 80 years or so, is focused on Aero Engines, that's been the biggest part of our business. And we are today predominantly focused on wide body aircraft, so that's aircraft like the 787 and Airbus A350.

Bret Kugelmass
But just the engine, right, you don't build the airplane.

Alan Woods
No, we provide the engines. That's the neat bit. We also have a defense business which contains aerospace products, land based products, marine products, and, and of course, submarines. And we have a power systems business and our power systems business. We provide power generation systems. So for land based applications, whether it be for data centers for other backup power generation needs. We're also it's one of the most exciting parts of our business as well, because some of the new technologies around the decarbonisation agenda around things like micro grids, fuel cells, electric, and things like that. That's a fascinating change in that part of the business, which we're really embracing. There's lots of opportunity there in energy, we all know, energy is becoming the key part of the global debate and how we decarbonize it, and that goes beyond just power. It's about heat and transport as well. And thankfully, in Rolls Royce, we have products that are suitable in all of those areas. And we're really pioneering some of the developments that will be core in the future.

Bret Kugelmass
And so you've got aircrafts, you've got defense, and you've got power, and I guess nuclear, the nuclear expertise kind of sits in between or overlaps on both the defense side and the power side.

Alan Woods
Correct, yeah. Yeah. Yeah. As does aerospace expertise and marine expertise, you know, what we, what we like to do is introduce products where we can have multiple applications for them. And yes, there may be changes. So you know, we're looking at an engine for flight would be slightly different to an engine for, for a land based application, there's a different set of requirements, which drive a different solution. But some of the core technology we'd like to reuse and exploit across multiple markets. That's been something we've done throughout our history, and very successfully.

Bret Kugelmass
So you started off your career, you started off in the control system aspect on the defense side, but within the nuclear realm, how did it progress over then you mentioned corporate strategy, but what was kind of the arc of it?

Alan Woods
Yeah, so I began as an engineer, I moved into program management. And why did I move into program management. I think I really enjoyed seeing the, the slightly bigger picture getting involved in stuff outside of my niche part of engineering. And I found that I guess I was, yeah, a little bit rushed. I wanted to get that experience more quickly. So I moved into program management. And from there, I then moved into a corporate strategy role. I did a stint over in the US with Rolls Royce, which was great rotation assessment, not only moved into corporate strategy, but my role in corporate strategy back at the time was looking at how we broaden some of our business aspects. And energy was certainly one of the hot topics, it was when the environmental agenda was just starting wind farms were becoming very prevalent, solar is on the increase. Tidal has been looked at, and conscious of our nuclear heritage. We previously had activities in civil nuclear business, we we started to consider setting up a nuclear sector. I was I was part of that from a corporate strategy perspective. And as a result, I moved into that business when we established it back in 2008.

Bret Kugelmass
And so what did it look like in 2008? And how has it changed over the years?

Alan Woods
Oh, yeah, it was. Well in 2008 we had ideas, it was at the start of what they called the nuclear Renaissance, if you remember. And in the UK, particularly, the government at the time had a white paper energy policy that allowed to build a new nuclear. So we had many variations of technologies and customers coming to the market, putting in interest to go through the generic design assessment licensing process in the UK. So we had DPR with with Areva Framatome we had Westinghouse, the ABWR and it was fertile ground. And there was a lot of activity generating a lot of industrialization generating around that. So our business at that point was very much in the mode of I wouldn't necessarily say startup, but it was a new market. This we have this new big emerging market. So we are establishing the footprint we're establishing the right capabilities and growing the skills and expertise we needed to operate in that new growing new build market. It's changed enormously over time. And we as Rolls Royce, we're a global business, that we don't look at anything through the lens of complete local, plus the UK mark, it was a catalyst for our growing, we immediately looked at how we can build those key customer relationships across a broader geographical footing. That's really what's required for us to to have those customer relationships that are important to our customer, that's the way we can best offer a value to them

Bret Kugelmass
And what were you selling? And what were you selling? Let's say you started up by two in 2008 by 2014 and 2016 as the business had matured what was the actual thing that Rolls Royce was selling?

Alan Woods
You know, we hit within our nuclear business we operate a number of aspects, we have an instrumentation and controls business, we have a services business, we're also looking at a new build. So a manufacturing systems design business.

Bret Kugelmass
So okay, so just so I can understand that a little better. So the instrumentation controls that's like hardware and software I guess to go along with it. And then on the new build, that's just like engineering services. So nothing physical is being sold but expertise engineering expertise is being sold

Alan Woods
No, we are selling physical. So we we we provide some of the key systems that go on a nuclear plant, so emergency diesel generator system for example, and this is a good example of where a Rolls Royce brings its expertise to bear because we can marry together, the products that we have in our, our systems business with our nuclear business, we offer that as a as a solution, which combines products from multiple parts of the Rolls Royce family companies, and it's, it's a powerful offering. And that's a big system for the nuclear plant safety critical systems. So that's an example of the product type areas we provide. And within that, we provide our own product. So some of it is our own engines, but we also operate in the procurement role for the balance of the system and system integration. Also, we also use the supply chain for for the rest of those parts.

Bret Kugelmass
Got it, okay, so then how is it? So that's kind of, you know, as the business matured, Those are some of the roles they play in the nuclear industry. What does it look like lately in the last couple of years, what has it transformed into?

Alan Woods
Yeah, so the market has changed for us this the nuclear renaissance that was on everybody's lips, at the start of the last decade, I think it is arguably not not played out in the manner which everybody expected. The large reactor build programs in the west have suffered incrementally increasing problems. And it's not all of their own making, many of them are of the financing nature, due to the very large capital. And that's a function of the willingness of investors to put the money into those kind of programs spent against the backdrop of some developments in oil and gas world where gas has been particularly cheap. It's been seen as a good alternative, before any real climate change agenda, took a grip. The nuclear had some big headwinds some of those headwinds have been a bit slow in making these large plants are very large capital are very complex, so they do suffer delays, and they do suffer cost overruns. And all of that context, for me, attractiveness position, it's not really positioned nuclear very well. You asked most people in the general public and we've run some surveys, I see most people are not anti nuclear. But what they are anti is just the constant cost overruns and delays to the programs. So well, you know, we, as Rolls Royce, we, we did take a decision that SMRs, small modular reactors, really do have a significant opportunity here. And we do know how to make things. And more than that, as Rolls Royce, we know how to make things in factories. And what we what we've learned over the many, many years, we've been manufacturing complex components and systems is it's not, it's not just about sayings let's build stuff in a factory. It's what we do in the factory that support, how we design the product for manufacturing that factory, and how we define the design the factory, specifically to manufacture that product. That's how we end that's how we are able to take significant manufacturing time out and reduce manufacturing costs significantly. We're also a nuclear company, we do have nuclear design expertise. And we considered that having a product which you can manufacture, and you can turn into a product away from a very large infrastructure program is the way forward. So that's what attracted us to SMRs. And in recent years, our focus has really shifted to our SMR program, our SMR program. It's not about a nuclear reactor, it's about a power station. And we only get the economics right if we design the power station as a whole. The nuclear part, which everybody focuses on, is only about 20-25% of the capital, if we're really going to address the economic challenges that nuclear has but also provide a product which we can build with certainty to shed our own cost, we have to address the engineering challenges at the total system power station

Bret Kugelmass
I you know, I I agree. I agree with you on this point. But then, you know, when I brought this up, some of the skeptics have said, Well, yes, if you look at just the nuclear island, you know, that's only you know, 20% let's say of the cost some people say even as low as 15% of the cost, but they say but you're not considering The fact that it is a nuclear plant drives a lot of costs in your balance of plant, for instance, like seismic qualifications, if you're still, if you're building the whole site to nuclear seismic qualifications yet, you can say that, you know, your costs weren't technically part of the nuclear island. But the reason that it costs, you know, $2 billion to lay a foundation instead of, you know, what they might do for a, you know, another thermal plant, you know, you know, 10s of millions, 100 million or something that's nuclear related, even if it's not part of the nuclear islands. So what do you say to that?

Alan Woods
Yeah, I'd say, that's one of the big challenges of SMRs. So, and this is one of the challenges our engineers face very early on. SMRs only work, if you are building the same thing over and over, you only get the benefits of factory manufacturing if you're manufacturing the same parts over and over. And that means that we can't be in a situation where we're having to redesign the plants. For every particular site, we want to build something. And that's what drives the cost into nuclear. Because you're absolutely right, the protagonists who say, yes, you have to drive cost into the other part of the power station, because it's all related to nuclear. It's true. And every time you have to make a change, you got to re justify that change and its implications across the whole plant. So making changes for a site specific application can become very expensive. And if you're an SMR level where your power output is lower, some of those change, those cost changes don't scale with power. We've got to address that.

Bret Kugelmass
Yeah, how do you address that? That's a great, yeah.

Alan Woods
We haven't addressed it. I mean, so the first thing we did was we said, we recognize this as a power station, we recognize this issue. And we've assembled a team of partners from quite wide industrial base, which brings together all the capabilities required to design and build a power station. And one of our key requirements, our whole approach is a market driven requirements based approach one of those key requirements has to be repeatability, if we can't get repeatability, the benefits of volume becomes less relevant. So how do we standardize? Our plan is specifically designed to have a small footprint. So it's smaller in power up, but it's also much, much smaller in terms of its geographical football, capital size, it's about one and a half football pitches, pitches.

Bret Kugelmass
So what does that what does that in terms of acres? That's like 10 acres or something? Or how many acres is a couple of acres?

Alan Woods
Football pitches? Our football pitches? Yeah. I think it's around that.

Bret Kugelmass
And are you talking about the whole site? Are you talking about just the building that it sits on? Because a football field seems like it'd be pretty small.

Alan Woods
That's the power plants. Okay, so the site boundaries will be bigger than that but not a huge amount bigger. But yeah, that's the, that's the power plant.

Bret Kugelmass
And this will be for how much? Or how much power output? Sorry, for how much power output,

Alan Woods
That's a 440 megawatt. Great, it's the footprint of the power plant, which is really built in from a standardization perspective, because that small footprint allows us to, to mount the all the plant machinery that forms the power station, on what we call an aseismic bearing. And that insulates all of that plant and machinery from the specific site conditions.

Bret Kugelmass
Tell. Tell me more about this. Yeah, tell me more about this aseismic bearing so is this like, I remember when I was reading about the Apple facility, you know, their spaceship facility, the whole thing is on like, giant, you know, roller wheels, is it is it the same concept.

Alan Woods
It's not on roller wheels, but yeah, it's a concept that's been around in the civil engineering world for a while it's, it's widely used, it's not been used quite for this application before. And hence, you know, we do have a requirement we are talking very early with with regulators about it. But the principle of this is well understood. Engineering is well understood and it's proven technology, it's how we apply it, which is, which is the important feature. But it does provide that insulation from the specific seismic condition. So all of the plant and machinery, it's, it can remain common, irrespective of the site we're delivering to and that is absolutely critical to get that commonality which allows us to get the repeatability and therefore the benefits of a production line approach and the factory and get the benefits of a loner effect. None of that would be possible. If we are constantly having to tweak the design for every single site. And the protagonists are absolutely right. The minute you start tweaking design for every single site, you're costs are going through the roof.

Bret Kugelmass
And yeah, tell me more about this. How this mitigates like seismic qualifications? Is it like is the idea that you can resist up to a 9.0 earthquake with the system? Or like, how does that actually work? Yeah.

Alan Woods
The so the aseismic bearing is the only thing that is specific to the site, every site will have a different aseismic bearing. And it's tuned specifically to our to allow only a limited seismic scenario through the through that base map. Yeah, so no matter where we build it, the seismic barrier will be different for each site. But it's only depending on the size, five to 10% of the capital is the only bit that's, that's unique, and specific to the site. All the plant machinery that sits on it, that aseismic bearing is tuned to ensure that whatever they can, the seismic conditions that the plant machinery sees are just common. So we design all of that machinery to a, a set standard set seismic conditions, and the aseismic bearing is tuned and designed to ensure that that's the maximum it'll ever see. Now, what that also enables us to do is not only standardize, but we, we modularize, everything that sits on that aseismic bearing, including the civil structures. So all of the all of the equipment that sits on that aseismic bearing is factory fabricated.

Bret Kugelmass
And this includes like concrete, concrete stuff. Yeah. And how big of a piece of concrete Can you factory produce?

Alan Woods
Right we have. So our civil partner is focused on, on providing what is called standard standard components. So we'll have a standard library of civil structures, which will be designed to accommodate all the requirements we have in the plant. But again, there will be a discrete number of civil structures, they're not all we're not just going to have one offs. We're not rebuilding, a very complex civil structure over here, just for one particular circumstances, this is Lego brick approach, or stick and brick approach.

Bret Kugelmass
And just so I understand, are the the civil structures, are they literally factory produced? Or is it just the formwork is common? So it's more standardized? Are you like, is there literally a factory that like you're pouring concrete in that factory? And then you put it on the back of a truck? And then you drive that concrete structure to the side?

Alan Woods
Correct.

Bret Kugelmass
And how far how far away can this site a concrete producing factory be before it becomes cost prohibitive from a physically moving that much weight around perspective?

Alan Woods
So let me let me answer the first question first. So yes, they are all factory fabricated, that enables us to get a much, much better we get much better consistency in how we do the manufacturing. So we can guarantee a better controlled and controlled environment, we get better accuracy for the pour. And it's interesting from a regulatory perspective, because they, they have to then inspect in the facility, not at site, which has some challenges against what has normally been done. And so this is another area where we need to, and we are engaging with regulators early on to accommodate. But they are we get much better quality control ability within a controlled environment. In fact, we don't have any weather conditions, for example, for the impact on our concrete pour. So then we turn to site. So all our modules, whether it be the civil structure, the civil modules, the mechanical electrical modules or the primary modules. All of them are designed to be very transportable across UK and Europe. That's a key requirement. And it's also a limiting factor. It's a key requirement, because this is an SMR. And it necessarily needs to get to places that are will be landlocked, maybe on a river or lake, not necessarily on the sea. So road or rail transportability is critical. Otherwise, we're designing a plant, which physically we wouldn't be able to get to those sites. Whether it be modular, it's not a case where you could just dismantle it down to further the number of discrete parts and build it on site, you just removing all the benefits you get from going to a modular design. So all our modules are designed to be very transportable, and that in principle means you can you can transport them over whatever distance you like. Now, the other thing that is this is a factory built product. So in the same way as if you don't, if you're a car exporter, you don't go and build cars everywhere that you want to sell them. You have factories which you make them and any country that imports them, just recognizes that if it wants those cars, it imports them. Same with this, we're not we're not going to Build facilities everywhere we're going to build them. We can't, that will destroy the economics nevertheless. And internationally, of course, we will lead to if the certain large markets, the whole Rolls Royce business model is on having regional hubs to bring in that manufacturing capacity, and then extending that as a consortium we're about to do

Bret Kugelmass
And how many do you have to sell to make the cost of the factory itself worthwhile?

Alan Woods
Yeah, so the payback on factory does depend on the module facility. So our module facilities or assembly facilities, essentially the civil module facility and the M and E module facility, our

Bret Kugelmass
M and E stands for mechanical and electrical?

Alan Woods
Yeah, okay. Yeah, sorry, yeah. Those, those are less heavy than the primary vessel facility, the primary vessel facility is the most costly facility, because it requires specialist machinery in it. And, and it does, it does move and manufacture the most heavy components. So if that's our baseline, that's the most expensive facility, that's the one which drives the biggest number of returns in terms of volume. The return on that facility is a function of not just the number of units, but the pace at which we built the units as well. And we don't actually need that money, we anticipate that we'll need current modeling around 10 units to break even on the factory.

Bret Kugelmass
And then who pays for that factory? Who pays for that factory up front? Then it seems like they have like a chicken and egg problem. If you need to sell power plants to build the factory and you need to build the factory to sell the power plants, which comes first?

Alan Woods
Yeah, you need both. You need visibility to fulfill orders to independent commercial investment in facilities. That's normal. They have companies in our product.

Bret Kugelmass
Yeah, so does this mean that you have to at least like get Purchase Orders of those first 10 plants and then you show up at a bank and say, Hey, bank, give me a loan for a billion dollars to build this factory based on these purchase orders? Is that the general gist of it?

Alan Woods
Well, it depends who's financing the factories. But the gist of it doesn't matter where you get to any bank, or whether you're trying to convince a board to invest in the capital for the factory, the principle of I need some level of certainty on margin investment is still valid. And that certainty, it's not binary as a sliding scale. So do we expect to be in a position? Do we need to be in a position on day one where we can say, look, here's the totality of all the forward orders? This is exactly what you're going to get over the next 30 years? No, we don't. Equally, are we gonna turn up to an investment committee, whether it be an industrial party or to a bank and say, hey, I want to build this facility. And I've got no orders. No, absolutely not, we've got to be. There's a balance in the middle. Yes, we will need visibility and we will need some orders, we will the visibility with a forward marking. In the UK or in other territories that typically comes in the form of an energy policy, which is saying I want to build so many gigawatts of nuclear. And energy policy of that nature is great for us alongside a number of early units, so we have confidence in our plan. And this is where our job comes in. If we weren't absolutely confident that our plan will do what it says on the tin, that is deliver electricity, at extremely competitive rate, we won't be doing this project anyway. Because we have that belief. Once we've overcome that hurdle of the first units where we demonstrated it, and we have the visibility of the forward market opportunity we will sell we will sell the unit. And the market opportunity here shouldn't be underestimated because we often get obsessed with grid power. And grid power is one thing but when we look at the context of total energy system, we as the human race uses far more energy in transport and heat than we do in grid power. And we get

Bret Kugelmass
Who takes the risk on the cost of the power plant? Is this just like a turn key. Because most like manufacturing goods use the analogy of a car before you know, when you buy a car from Ford. They tell me you know the price is you know, $20,000 or $30,000. And that's the price I don't have to pay any more than that is Rolls Royce also changing the business model in the sense where they're offering a fixed price turnkey product for the power plan?

Alan Woods
Our ability to do that is dramatically enhanced, because this is a product as I said. So our consortium will shortly be a joint venture company, that joint venture company will is delivering a set of products out of factories, which it can assemble on a site. And when combined form the power station. We as the JV will take that contract to deliver that product in the same way as when you own a car with with Ford, it will take the contract to deliver that car. And that car is made up of all its constituent parts which come from a broad supply chain,

Bret Kugelmass
For for a fixed length for a fixed price product. So this would be like for a fixed price that's known upfront. So it's like, you negotiate with the utility and you say, our JV is going to offer this product for $3 billion. And it's not gonna be a penny more than $3 billion, we will take the risk of it's $3.1 billion, we lost $100 million, is that kind of how it works.

Alan Woods
I mean, different different customers will want to try out different commercial models, you know, fixed price model, it's attractive to certain customers, but equally, customer know that if they if they insist on a fixed price, then whoever is delivering that will will naturally attribute some risk contingency to that fixed price nature. So, target costs, incentivize contractors and a variation on it. But the principle of here will stand by what it costs us to build the product, and therefore deliver that to customers for that fixed price. Because this being a factory derived product, we know how much it will cost us, Bret, you know, we, we don't have the same issues of it's a one off here, we're going to have to get something redesigned. And we don't yet know what extent the redesign will be because it's a different site. We haven't got any of those things. It's standard. It's the same thing. We did it last time. Exactly. It's off a production line. And in fact, from delivery perspective, if this site needs a part, and we've got one sitting there from from that was earmarked for this site, we can manage the delivery between, we can do that, because it's a standard product. The other aspect which which is enabled from our small site footprint is a feature we have, which we often refer to as our fourth site factory was site canopy. And this is key, because it it completely removes the impact of the environment on the assembly side, I use the term assembly site, because for us it is a module assembly site. So our build schedule is is what we call two plus two, two years for the aseismic bearing, two years the assembly commissioning and tested the modules on the site. That site activity, the biggest risk to delay on that site activity comes from weather related risks, particularly in climates like northern hemisphere, and the UK, particularly or Northern Europe, you could lose up to 40% of your available working hours per year, just through weather related risk. Now, of course, you can factor that into your schedule. And you can apply a risk contingency to accommodate the fact that it might be worse. All of that is just increasing your financing costs. You've got a longer time over which you're borrowing money, you're paying more back. Yep, if you're carrying additional risk, you're carrying additional risk contingency. So your cost of borrowing is going up and you're you're actually kept going up. So all it's just sending your costs up and up and up.

Bret Kugelmass
Yeah, now this sounds great. And when you say this canopy, so this canopy Tell me more about this. I think I've seen some pictures online where it looks like almost like a shiny armadillo shell of some sort. Is that about right?

Alan Woods
That's, that's, that's actually part of the final plant.

Bret Kugelmass
Oh, wow. Okay, so what is the canopy?

Alan Woods
It's like kind of be actually it looks like a factory. It's modular in its own right. And it goes up on on day one, it comes down at the end of the four year period.

Bret Kugelmass
And it's the end it's the size of a couple of football fields essentially.

Alan Woods
Yeah, yeah, it just covers that one and a half football football field site.

Bret Kugelmass
Our site

Alan Woods
It contains the drainage. So we can we don't need the big tower cranes, we can improve our efficiency of operations by by having the something like storm cranes even could could be introduced. And the issue is,

Bret Kugelmass
yeah, are such canopies used already in the construction industry for other types of production?

Alan Woods
Yeah. So again, the partner who, who's working on Consortium. They're experts in this field. They've done it before. They've done it on not quite the scale but not far off. And it's entirely that they've worked on this design, and then they've got high confidence and very high confidence. And actually the benefits of it, Bret, it does cost something. Yeah, provides additional costs. It's not a huge amount of additional cost. But the benefit is enormous because not only does it remove that risk, it also introduces contingency because our baseline check your institution pattern for build. We can, of course, if we really need to work 24, seven inside that canopy because we can control the environmental conditions, and including the lighting.

Bret Kugelmass
What's an example of that? So this would be I guess, the biggest one of these canopy is to ever be built or be used in construction? What's the next biggest? Is there a project that was successful that we can, that we can look and see, hey, this worked on the combined cycle plant in Nebraska? Is there something like that?

Alan Woods
Yeah, no, not to my knowledge and power industry. But our partners used it for some further infrastructure related projects around some of the transportation projects they've done.

Bret Kugelmass
And how much how much bigger is this one going to be than that one?

Alan Woods
Not much bigger. It's well within the realms of being able to extend the parameters.

Bret Kugelmass
And so how much how much does? How much do these costs, these canopies? It's like, a $50 million operation.

Alan Woods
Yeah, it's about 50 million. Yeah, that does provide additional cost. But it says that huge benefit, we also think that it could even derive that the cost of it back from the savings that it will provide to the operator. And in terms of the environmental impact assessments, they need to do the other way. Because we are now in a contained environment, but the containment is to wait. So we're protecting the environment, from the activity that's going on on the site. And that means that a lot of the environmental impact assessment associated the impact on the region, from a build perspective and build construction perspective, doesn't apply. We don't have particulate emissions to the atmosphere during the during construction, for example, they're all contained so it has multiple benefits, it delivers way more than its cost back in value, way more. The first crucial thing is it completely removes that risk. And it gives us certainty on schedule as a result.

Bret Kugelmass
Amazing. So So you mentioned earlier that Rolls Royce has shifted its focus towards smrs. What does that actually mean? Is the old nuclear business sticking around? Has it totally is all your Human Resources now being applied to SMRs? What do you know, what does the organization look like? Now?

Alan Woods
It's been a it's a bit of both we've we have divested some of our businesses which were in, in markets or territories, which weren't core to the strategic direction of the business, which is around SMRs and new build. We've kept parts of our business which provide which use the same skill set, but we need an SMR and which also are critical to serving some of our common customers.

Bret Kugelmass
And and so how big is it? How big is the organization? Now? What is this SMR look like? effort look like? moving forward? How many people?

Alan Woods
Yeah, in our SMR business now we have about 300? 355.

Bret Kugelmass
And what does that that's like mostly engineers, or half and a half engineers?

Alan Woods
No it's essentially all engineers. I'd say yeah, 95% of engineers,

Bret Kugelmass
And they're all working on this new project, or they're still kind of maintaining old service contracts as well. Or I guess we try to figure out that

Alan Woods
There's an additional sorry, the numbers I gave you for the SMR SMR entity which is Rolls Royce and our partners Yep. Across the across our partners working on the SMR program, right now we have broadly that number of people. On the rest of our business, we probably got a similar number. Again, you are working on existing contracts for existing customers. So we have people supporting EDS new build program in the UK. That's important. Yep. to the UK nationally, it's important to to our business that we deliver on those obligations, we'll continue to do that. And we continue to support some of our customers from a service perspective with their operational fleets. And so we've I'd say rather than I shifted where we shifted the focus, but consolidate not business are the key skills that are associated near term with you build and design a

Bret Kugelmass
Love the concept love where you guys are going with this, true pioneers in this space. I think the UK market is a great one as well, from everything that I've learned. What are some next milestones that you guys want to hit or that you have to see in order to make the first build a reality.

Alan Woods
Yeah, so we have, as you'd expect, we have a gated program. That's a phase gated program. And the milestones that are cheaper lead to the gate. So combination of technical milestones, and what would call commercial milestones. So on the technical milestones, the near term objective is to sanction all of our key innovations. And what I mean by that is, we are innovating for benefit, not for the sake of innovation. So you won't find technology for technology's sake in our plan, all that does is introducing regulatory risk. And it introduces the risk of delay. So in sanctioning all our innovations, part of the sanction is, what's the true benefit of the innovation, the true risk of the innovation.

Bret Kugelmass
This is like an internal audit process of some sort.

Alan Woods
Yeah, this is an internal process we follow. So we have an art, we have a lot of technical innovations. And they range around innovations around how we design the plant to say, reduce emissions during operation, how we innovate around the plant to improve manufacturability. And all of the innovations naturally have a cost associated with them, because they are by definition design programs. And all of them have to have a benefit. Some of them carry a risk. So it's how we articulate the cost benefit and the risk, which comes together to, for us to sanction our innovations, some of the innovations that we've looked at have brilliant technical solutions, but that solutions to a problem that doesn't exist. And we cannot as the nuclear industry, we don't believe continue to be in a world where we are providing solutions to problems which don't exist yet. Okay, industries constantly doing that. And we have to provide solutions to problems that do exist, namely, cost risk,

Bret Kugelmass
Totally agree. Okay. So that's the internal review. What's next, then on the technology track? And what's next on the commercialization track?

Alan Woods
Yeah. So next on the technology track, is we entered the UK generic design assessment process. And we'll be doing that early next year.

Bret Kugelmass
And how long? Yeah, how long does that? Do you expect that to take?

Alan Woods
Yeah, notionally, that's four years. But we are working with the regulator to see how that might be reduced. And the regulator is keen to take a look at the GDA process and streamline it where we can say that's great when you know, we really welcome that approach and the current electorate, we think it's great. So hopefully, we can shorten that baseline program still is operating on the basis of that four years there. On the commercial side, yeah, we, so we are working with UK government, and UK Government, as you'll be aware, is providing us with some match funding for the current phase of the program. And for that, they have set some milestones on us, of course, as you'd expect, they want to see us having things like our joint venture company needs to be formed within the next 12 months, that's one of our commercial milestones. We have other milestones that are more market related. So we do need some clarity on that forward market that we spoke about earlier to give give confidence in subsequent investment decisions. And that necessarily needs to come in the form of some form of energy policy, which states that this is the trajectory, whether it be in the context of decarbonisation or not that the nation is on to decarbonize the economy. And as a result, this is the natural mix of low carbon energy sources that we will be pursuing. This is the position the SMR fits.

Bret Kugelmass
But out of all places, it seems like the UK already has all of the energy policy you'd ever need for nuclear because it's got this decarbonisation goal not just in the electricity sector, but across all sectors for 2050. It seems to me that that's all you need. What else are you guys waiting for in terms of energy policy?

Alan Woods
Well, that's you would have thought that might be all that's needed. But in the commercial world, it's not because when you're investing, investments in infrastructure, national infrastructure, are by definition expensive. You're talking about large amounts of capital. And private companies will not part with those amounts of large capital unless they have some form of certainty about longevity of the program, it starts with certainty that there's not going to be sudden sudden change of policy, which says, I don't want this after they've expended half the money, then comes in certainty of the returns. So what is the future pricing policy around the energy market? Because you anybody investing in nuclear needs certainty for at least a period of the first part of Operation, that you're gonna be able to sell electricity for products? I think that's becoming easier in a decarbonized world, because by simply the demand for low carbon, electricity is gonna go through the roof.

Bret Kugelmass
Right, and I was gonna ask, like, how else can that possibly manifest itself? Do you need like Parliament to pass a law that guarantee is that the nuclear plant will be shut down for 20 years or something? Or how does that work?

Alan Woods
No, it's a it's a, it comes in the form of energy policy. This is the goal, then is the CCS goal, we have net zero. But there needs to be some context about how we're going to achieve that. Now, government's going to enable that market. Because the reality is that the moment you leave it up to the pure commercial markets, they would go down the cheapest route. Well, wait a moment, in terms of capital, yeah, happens to be just put up another CCGT? Because that's just the cheapest and quickest things to do in the short term, expensive, long term. Yeah, because you've got to you've got that uncertainty of fuel volatility, but but the markets don't always decide the right thing.

Bret Kugelmass
But the carbon, the carbon, the the carbon laws that you guys have passed, your climate policy that you passed, essentially mitigates the risk from the fossil industry being an economic competitor to the nuclear, but and with your model, I mean, you should be able to provide electricity competitively with renewables, especially when you factor in the cost utility for baseload and yada, yada, yada. And so what's the, I guess? What's the challenge in going to, you know, some banks, some hedge funds and private equity groups, and rounding up, you know, the first couple billion dollars to make it happen.

Alan Woods
There's no challenge in doing that. And absolutely, we naturally want to create those who have the funding, and that's the the operator doesn't necessarily have to be the financier. Even more so in a world where you might not be building an SMR to provide grid electricity, you might be producing an SMR to provide synthetic fuel for transportation, aviation, for example. So yes, you've got parties who may be interested in building a power plant for different reasons. And their business case is therefore predicated on a different set of scenarios which are underpinned by net zero legal obligation around 2050. But any of the solution, which let's take, let's take clean solutions across heat and transport, as an example, an E-fuel, synthetic fuel or hydrogen, are going to be more expensive than the counterparts today. So you could build an SMR to synthetic fuel plant today. And there has to be some incentive or disincentive applied in order for you to overcome that initial cost barrier. Until you build a volume and scale. You're gonna be more expensive than say, big oil off the ground, particularly with current oil prices.

Bret Kugelmass
Sure, that makes sense for the fuel. But that's, that's looking further down the road, it seems to me that there's already a huge market just to play in the electricity sector, even just in the UK, as fossil industries wind down over the course of the next,, you know, 20 to 30 years. So, I guess what, what's the just kind of staying within that narrow realm? Is there is is there a real perceived challenge with to prove that your system is competitive? Or is it just a matter of going through the engineering process, checking off the boxes, getting the regulatory approval and building one of these things?

Alan Woods
So look, the challenge, the challenge is multiple, there's a natural challenge with the fact that this is nuclear, and like it or not, nuclear becomes politically ingrained. That's just what it does. Secondly, the reputation of nuclear, from an investor perspective is not particularly stellar. Investors therefore, want certainty on their investment. Right. And that means that they will seek the government to underpin the return that they get, but why not outlay the capital now.

Bret Kugelmass
Why not the private, private market like why doesn't Rolls Royce or some of the other partners if you guys like you built such as amazing coalition that can that can has the construction expertise that has the manufacturing expertise, it seems like your reputation is so good. And the fact that you are big companies that you can put equity behind it, that you can just offer the guarantee to the private markets flat out without involving the government at all.

Alan Woods
So what we can promise is confidence in our ability to deliver the plans, price and timeframe we, we say, until the point we've actually proven that by doing it. Any investor who's outlay, the capital to build it is going to be naturally nervous because the history of the nuclear house is not great. We're tarnished with that. Yes. Is everybody else in nuclear.

Bret Kugelmass
Yeah, but that's but that's that's mitigated by charging.

Alan Woods
We built some Yeah, before we can, before we can take a pure private investment approach to it once we built it and we can point to and say, we built it on time we built it to budget. Here's the business case. At that point. Yes, the markets big enough, the sufficient investors out there who will enter the capital we're talking will invest in this plant. But we've got to overcome that hurdle. We've got to, we've got to demonstrate that we can do what we say on the tin. And that means that as a minimum, to attract commercial investment into the build of the first units, those investors want to see some certainty some backstop that limits their exposure. And that's in the form of a contract for difference or a guided asset base model, some for power purchase agreement, which limits their exposure, and asked where the role the government needs to play in the near term.

Bret Kugelmass
That's great. And then but aren't there already good precedents, especially in the UK for that contract for difference? I mean, can you essentially based on historical examples of nuclear assume that you're going to get $100 a megawatt hour guarantee?

Alan Woods
I don't think we're here, we can assume that we'll get $100 a megawatt hour.

Bret Kugelmass
Or I guess, what could you negotiate right now?

Alan Woods
I've come down recently with increasing renewables so that it's not sustainable. But but that's the reality.

Bret Kugelmass
So what's a good what's a good price that you think it's like? Because I'm always interested in how can we expedite this? So it seems to me like there's a model here where you could say, okay, we're gonna lock in an $80 megawatt hour guarantee or $60 megawatt hour guarantee. But because of our you know, what we're able to demonstrate internally, we've proven to ourselves, given our manufacturing expertise, given our EPC engineering, procurement, construction expertise, we know that when we sell this thing, the electricity is only going to cost us $40 a megawatt hour. So we can make that 20 or $40 a megawatt hour over the lifetime. And then we just go to the private markets and say, Okay, I understand you're a little wary about nuclear. So charging, instead of charging, it's a 5%, risk premium charges, charge us a 6% risk premium, or an eight or 9%, risk premium. And let's call it a day, let's get one of these things built.

Alan Woods
Yeah, yeah, you're spot on. So we know, the first thing we can do is we can control things that are in our control. And what's in our control is the design of the plant and the cost of the capital, overnight cost of capital, and to a degree, some of the operational costs, because that's, that's a function of how we design it, how we design it for the refueling cycle, how we design it for maintenance, condition based monitoring, etc. What we can't control the cost of financing. Yeah. Now, there's aspects of that we can control once we've demonstrated the plan. Once you've demonstrated, we can build it because financing costs is a function of, yes, the absolute capital, the risk profile or perceived risk profile, and it's the perceived bit, which is tricky for nuclear right now. Yeah. And the duration of the build. Yeah. And we've got short duration to build we've got much lower capital, we've removed a lot the risk. Nevertheless, until we've done it, until we built one, anyone is outlaying that money will want to have some protection around their income. So that necessarily will mean a higher electricity price. Or it means some other form of risk mitigation from from the government that helps bring down the cost of financing. So our range of electricity prices dominated by the cost of financing

Bret Kugelmass
And and Rolls Royce can't sell finances, they can't just issue debt from the company's balance sheet and sell finance a project like this. There's certainly a big enough company and that's never been cheaper, why not just sell finance?

Alan Woods
So it's not our business model to finance our products.

Bret Kugelmass
But isn't that's what's necessary to show confidence behind the product. I mean, it Rolls Royce is coming out and saying Hey, trust us, we did the numbers like why not, you'll put the money where your mouth is type thing?

Alan Woods
We're, we're not an operator of stations. And there's a lot more complexity into being an operator or an owner, operator of a nuclear asset and just putting the money in,

Bret Kugelmass
But all the risk we just established was in the financing of the construction, the operational costs don't seem that they would very much once the thing is actually built.

Alan Woods
Yeah. So it's not our business model. But equally, we don't see we need to do that. Because there are other ways to do it. And we are talking with customers who, who accept the benefits of SMRs. They've been through our program, and they do diligence. And actually under the right environment, they'll are willing to build. The UK is somewhat unique in the fact that, and I guess similar to the US as the rest of Europe, we don't have a state owned utility. So we are in a slightly different position when we talk about international markets. We know how we financed and we know, the operators exists today who have that capability. And we also have the opportunity where we can get, we can access things like you can export finance, for export plants, which massively brings down that cost of equity and brings down cost of electricity.

Bret Kugelmass
And that's for when you're exporting internationally

Alan Woods
We can reduce the cost of borrowing and therefore reduce the cost of electricity. And there's not a one size fits all solution. It depends on the market, depends on the customer. And it's a whole set of courses. And just to a large degree does depend on timing, because up until that point would build that first one. Yeah, people will be naturally cautious with nuclear.

Bret Kugelmass
Yeah. And who are the types of customers in the UK, because it seems to me like the first few would have to be built in the UK to take advantage of the fact. First, if you're going through the licensing process in the UK, it's going to be built in the UK. And then if you're you're going to use this factory model to show how you can reduce costs. You know, the first few are going to be in the UK, I'll say the first 10 or 20, or something. So who are the types of customers that would actually operate a facility in the UK? Is this Électricité de France? Is that the only game in town?

Alan Woods
First off, it's not necessarily true that the first unit has to be in the UK. We'll license Yes, we'll license it, license it in the UK. And that is critical because all international markets are looking to the UK regulatory system because it's it's extremely well regarded

Bret Kugelmass
Has that ever been done before where a power plant has been regulated by one nuclear power plant has been regulated by one country but never built in that country but built somewhere else?

Alan Woods
Not to my knowledge. AP1000 was built first in China, not the US is an example. Now they are building us. So but it was regulated first, in the US. It's the regulation that's just the key point, you have to have it regulated by your own nation, because that demonstrates your a demonstrates a trajectory that costs you on that build schedule but different countries have different different approaches to infrastructure programs in some territories. It's it's slower than others. But it does seem like they just want to get out and do it.

Bret Kugelmass
It does seem like the UK is a good market, because you guys do have very high electricity prices relative to other parts of the world, right?

Alan Woods
Well, at least things are always relative. It depends. Our electricity price, like if you look at wholesale electricity price, it it goes up and down dramatically. In fact, it's quite, it's quite startling, not just the regional, the regional, the the annual variants, but daily variants. And it's not anymore just a function of your demand on the grid. It's actually a function of degeneration in balance as well, because the more renewables we put on, the more intermittency we put on, the greater the uncertainty that you get. And, you know, we have quite a lot of cloudy windless days in the UK. And that is not a great mix for renewables. We often have cloudy windless and cold days. So electricity demand and those periods is high. So there's an extra dimension now being thrown into the mix with the advent of increased renewables. And all that's doing is putting more and more volatility to the electricity price at the wholesale level. So that's one of the areas where SMRs, nuclear is absolutely absolutely key because it can really bring some stability, not just into the grid inertia physically, but also in terms of pricing. And I think the other, the other key thing about the way energy markets are changing is the notion that one of the issues with nuclear was it couldn't load follow that that's becoming broadly irrelevant now. Because this isn't just about load following on the grid. This is about load following the energy system. And the reality is a nuclear plant, particularly an SMR has a lot of versatility in terms of how you can flex itself. If the, and I can flex the output, not now based on just the demand, but potentially based on economics. So if, if the demand and economics aren't right, then I'll do something else, I'll go generate hydrogen and store it, for example, I'll generate synthetic fuel. When it then flips the other way, I've got opportunities, I can either sell it or synthetic fuel, or I could stick it back to a CCGT and sell it as electricity. So you can start to, you can start to introduce benefits to the gridand the markets by balancing between energy vectors of transport, heat and power, which isn't, hasn't historically been possible. And you need things like e-fuels and hydrogen in order to do that. And it's done at a level which batteries just not capable of doing. So. Basically, you need a lot of energy to be made to be playing with a lot of power and you need certainty or when you're going to be able to produce because you need that certainty to know when you want to store and when you might want to not store.

Bret Kugelmass
Yeah, I mean, listen. Yeah, the case for SMRs is amazing in general. So you know, as I'm always pushing people on the show, you know, faster, faster, faster, when is the soonest that you think that we might get a Rolls Royce SMR turning electrons onto the grid?

Alan Woods
And we're talked talking 2029.

Bret Kugelmass
And what would be the one thing if I'd say, hey, let's get it done by 2026. That's still six years, we'll be the one thing that you say is the pain point that we need to go after to make it happen by 2026?

Alan Woods
Yeah, so the critical path with a new clip-on is always the the regulation and licensing and then quickly followed by the the supply chain, standing up the supply chain to deliver the products.

Bret Kugelmass
Well, there's no one better than Rolls Royce, that supply chain, right?

Alan Woods
Well, we we like to think we know what we're doing supply chain, we do have a very large supply base, and even nuclear our supply chain is is is life. So yeah, we've got we've got high confidence in them. And of course, they can add some development activity to do and capacity increases to put in that and those aspects do quickly become the critical path. So you know, and then you've got to build it and install it. And regulatory regimes are the biggest risk to it, if I'm honest, because you can easily introduce further, you know, we've seen in the past, a two year delay for regulatory processes is common if you've got too much innovation. So we are we're doing two things on that basis. First is when we're sanctioning our innovations. The regulatory question is one which we ask very hard. And if we're unsure, uncertain, we go and talk to the regulator about it. Because one thing we have to avoid is having a single innovation that causes a delay to everything. So those are two things we're doing to try and mitigate that. But the reality is that you know, these things, the processes that are in place to do these, they are finite times which are outside of our control today. You know, yes, can we design things more quickly, you can, you can always say you can design things more quickly. And certain parts of design program around validation verification example, which necessarily require time, that time driven and validation exercises. And they, they're there to avoid us having to build full scale prototypes as used in the past. So they've all been benefits much better, but they necessarily introduce time. And then And finally, you know, you've always got the case of you, you can, if it takes one man, 10 days to dig a hole, it doesn't mean that 10 men can dig it in a day. And that is a fact of life. But what we're doing in order to assess how much we can accelerate is assessing each of those critical path items, and understanding what we can do, but also who, who the other actors are, that can influence those. And what we're also not prepared to do is come up with some very near term date, which, which is incredible. Because people who work in this industry, our customers, they know what's credible. They know what's not. And our program is credible. We'll stick to that. Because we know we can deliver it.

Bret Kugelmass
Alan Woods. Thank you so much for your time today. Really appreciate having you.

Alan Woods
Thank you. Thanks.